6 Common Misconceptions About Financial Aid

So, you’ve gotten into college (congrats!), filled out your FAFSA (great!) and are now staring at a financial-aid award letter, wondering what to do next (uh-oh). As the May 1 deadline to accept financial-aid offers approaches, TIME Moneyland spoke to Mark Kantrowitz, publisher of FinAid.org and Fastweb.com, to thwart many of the common misconceptions families have when it comes to financing a college education.

1. Loans reduce the cost of college
Student loans help families manage their cash flow by spreading out the cost of college over many years, but they do not lower the expense. “A loan is a loan is a loan,” says Kantrowitz. “But a lot of financial-aid award letters treat loans as if they reduce the cost.” They don’t. Instead, loans simply reduce the amount of money families have to write a check for up front. Additionally, because of interest, they actually increase the final cost.

2. Net price is the same as net cost
Many financial-aid award letters confuse students and parents by listing both the “net price” (the total cost of college, minus grants) and also the “net cost” (the total cost of college, minus grants and loans) without explaining the difference between the two. As a result it looks like the (lower) net cost is what a family will be responsible for, when it is actually the (higher) net price (since unlike grants, loans are not free money). “Too often families think they are getting a free ride when the award letter includes $10,000 or $20,000 or more in student-and-parent loans,” Kantrowitz said.

3. A lot of students get a free ride
In reality, Kantrowitz says, fewer than 0.3% of students receive enough scholarships and grants to cover the full cost of attendance. Even those students who come close to having all their costs covered are rare. Only 1% of students have 90% of their costs covered, while 3.4% have 75% of their costs covered. A slightly more significant 14.3% have half of their costs covered. But because many parents go into the financial-aid process thinking their child will get a free ride, they often overestimate their eligibility for merit-based aid and underestimate their eligibility for need-based aid.

4. College costs about the same amount each year
Wrong. Each year the cost of college goes up. Currently, tuition is increasing at a rate twice that of inflation, so according to Kantrowitz, a student can expect to pay 20-25% more their senior year than they do in their first year.

5. The grants awarded will be the same each year
It’s important to keep in mind the award letter you receive only applies to one year of college. Not only does the cost of college increase each year, many colleges practice “front-loading” — meaning they award more grants in freshman year and fewer in later years, forcing many students to take out more loans in upper-class years.

6. Student loans are good debt
The wisdom behind this misconception is that education loans are good debt because they are an investment in the future, as opposed to credit-card debt, which is most often for consumable goods. But, of course, it’s still debt, and as Kantrowitz notes, “too much of a good thing can hurt you.” Student loans are only a good thing to the extent that you don’t overborrow, he says. At graduation, your total debt should be less than your predicted annual starting salary, in order to ensure you can afford the standard 10-year repayment plan.